ET Now: The WPI number has come in at 7.18% and the primary articles number has come in at about 10.61%. On the face of it, what do you make of these two numbers?

DK Joshi: The overall WPI inflation is slightly lower than what we had expected, though primary articles were expected to flare up because as we saw in the CPI inflation also that has gone up very sharply. My sense is that the decline would have come from the manufacturing side. The full inflation data is yet to be out, but the core inflation is what would have softened inflation, in my view.

ET Now: Where you think this number places the Reserve Bank of India and are you expecting a hawkish stance to continue?

DK Joshi: We are factoring in the rate cut to begin on January 29th and our expectation is that the rate cut would be front loaded because given the weakness in industry, the RBI will make a cautious statement, but they will start easing. That is my sense because there is no point waiting after January because right now we are seeing extreme weakness. After that the economy will begin to lift a little bit, that is what we believe. So given that there has been more than expected softening in inflation, the central bank will start cutting rates on January 29th.

ET Now: Tell us about what sort of trajectory would you map for the inflation trends for the year ahead because some of the estimates suggest that we could see the levels closer to 6% or below that 6% mark by the mid of this year. Is that a possibility?

DK Joshi: It could be one of events, but our call for 2013-2014 is 7% average inflation, which is still quite high, though it is down from a close 7.7% which we expect for 2012-2013. But the trajectory is a bit hard to predict at this juncture because there can be one of shocks coming from fuel price increase or some other component of WPI changing. But overall, as I said, we could see some further lift going ahead because as if plan of Re 1 hike in the diesel price per month gets implemented, then you will see a different trajectory altogether. Overall we expect the softening of inflation next year compared to what we saw in 2012-2013.

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ET Now: With respect to the fiscal deficit getting out of control given that the government seems to have done its part by raising the railway passenger fares, the plans to hike fuel prices as well, what is your estimate on the fiscal deficit and do you think they will be able to maintain a 5.3%?

DK Joshi: Well, for maintaining 5.3% you will have to get one off revenues and the disinvestment has to be very successful for that. Our own estimate is that the year will end with the fiscal deficit at 5.8% of GDP. These one off revenue enhancements can bring the deficit down for a particular year, but what is more critical at this juncture is what kind of trajectory we are likely to see ahead and what kind of measures the government takes for that will be evident or visible when the budget is announced.

So we have to wait for the budget to see what kind of medium-term fiscal planning the government is announcing. This year expenditures have already been controlled quite a bit and if they manage to garner more revenues, we could see the fiscal deficit lower than what we are expecting, which is at 5.8% of GDP, but as I said this is one off. What you require is a more durable path for fiscal correction.